Action Alert Update: Charitable Giving

Reported by Americans for the Arts

Early Saturday morning, the U.S. Senate passed a tax reform bill along an almost exclusively party-line vote of 51-49 with all Republicans voting yes, except for Senator Bob Corker (R-TN), who opposed it for the $1.5 trillion in debt that would be created.

In a rush to pass far-reaching tax reform before year-end, both the House and Senate have passed separate but similar tax bills. Unfortunately, both versions of the tax bill would have a very negative impact on charitable giving. The bill now moves into a joint conference committee to negotiate a final, unified bill that can be signed into law by the President. It is anticipated that the ability to include any new provisions at this point will be severely limited, if not impossible.

What is the Status on Charitable Giving?

Because both the House and Senate tax bills propose doubling the standard deduction, access to specific incentives for income tax deductions of gifts to charity become severely limited to only the top five percent of taxpayers who itemize their deductions. Americans for the Arts and the charitable sector had actively supported the idea of a Universal Charitable Deduction so that the incentive to give to charities would be available to both itemizers and non-itemizers. However, Universal Charitable Deduction proposals offered by Rep. Mark Walker (R-NC) and James Lankford (R-OK) never made it into the final bill nor were given an opportunity for a floor vote.

Data shows that the charitable deduction under both bills also will no longer be viable to 95% of all taxpayers because of the expansion of the standard deduction. That means:

31 million taxpayers who currently claim the charitable deduction will lose it.

Charitable contributions will decline by up to $20 billion per year.

What Do the Bills Mean for the Arts?

We are still reading through the latest proposals. Although there are some differences between the two bills, both bills overall fail the arts and cultural sector. Here is a preliminary summary of some of the other provisions in addition to the expected reduction in charitable itemizers that we’ve identified impacting artists and the nonprofit sector.

U.S. House Bill

U.S. Senate Bill

Eliminates the performing artists’ business deduction

No such elimination

Eliminates the $250 deduction for teacher supplies and instructional materials

Doubles the same provision to $500

Reduces estate and gift taxes by doubling the exemption and then ultimately fully repealing the estate tax (historically a generator of major charitable gifts)

Reduces estate tax by doubling the exemption

Repeals the “Johnson Amendment” prohibition on tax-exempt organizations’ support for political campaigns, without causing them to lose tax-exempt status

No such elimination

Repeals lifetime education credits, tax deduction for interest on student loans, and tuition waivers from income for graduate and PhD students

No such elimination

Increases limit on cash contributions to qualified charities from 50% to 60% of adjusted gross income. However, this only applies to the narrowed group of donors who can itemize their taxes.

Same

Repeals income tax exemption for private activity bonds, often used to finance cultural infrastructure projects, like museums